SunGard will spin off disaster recovery unit

SunGard Data Systems plans to split into two companies, spinning off a disaster recovery services unit using a tax-free distribution of shares to stockholders, the software and services vendor said Monday.

The move will create two independent companies: one focused on software and processing services and the other on business continuity, availability and disaster recovery services. The spin-off, which is expected to be complete by the end of the first quarter 2005, will effectively end the union that created SunGard through a leveraged buy-out in 1983, the company said.

Despite that merger over 20 years ago, the two SunGard businesses remained distinct from each other over the years, with different customers and sales forces and little overlap, according to a statement by Cristobal Conde, SunGard's chief executive officer (CEO).

The company's software and processing business, which accounted for 60 percent of SunGard's revenue in 2003 at about US$1.8 billion, mostly serves the financial services and higher education markets with integrated software and services. In contrast, the availability services business, which was responsible for the remaining 40 percent of revenue, or US$1.2 billion in 2003, is marketed across industries, the statement said.

The decision to spin-off the availability services business came from the desire to grow the two discrete business units by allowing them to focus resources on their core business and more easily form business alliances, as well as a desire to provide more clarity to investors about the value and prospects for each company, according to James Mann, chairman of the board of directors at SunGard.

The availability business will retain SunGard's name and brand. James Simmons, currently the group CEO of the availability business, will become president and CEO of the new company, which will employ about 2,000 people and serve 10,000 customers. SunGard's current chief financial officer, Michael Ruane, will also join the spin-off company, the statement said.

The company's software and processing business, which will be led by Conde, will have more than 10,000 employees and 15,000 customers in 50 countries, SunGard said. As an independent company, executives at the software and processing business will focus on deepening the company's relationships with customers in its core markets and on product development and integration, the company said.

Several SunGard board members will transfer to the board of directors of the new software and processing company. The two independent companies will each have their own board of directors, with little overlap between the two, SunGard said.

In its most recent financial statement, SunGard announced that income for the second quarter of 2004, increased 14 percent over the same quarter in 2003 to US$103 million, or US$0.35 per share. The company is sticking to its prediction of net income between US$1.37 and US$1.42 per share for 2004 and anticipates single-digit growth in both its software and processing and its availability businesses for 2005. Earnings estimates do not take into account expenses related to the planned spin-off.

The separation of the companies is expected to improve revenue growth at each of the new companies after the spin-off is complete, SunGard said.

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